China's M&A activity is in turbo-drive. Outward investment is soaring, as many more Chinese companies need and are able to pursue opportunities overseas. Inward investment is accelerating, as foreign firms seek a foothold in the potentially lucrative Chinese market. And domestic consolidation is heating up among the country's fragmented industries due to overcapacity. Now that the Chinese government plans to address policy hurdles affecting M&A and relax foreign currency controls, activity levels should rise across most sectors. But while this may improve market positions and increase synergies for local and foreign investors, credit risks could intensify.